Managing your first credit card is a watershed moment in building a positive credit profile, so it’s important to know that there is a right...and a wrong…way of doing it. This Starter’s Guide will show you the step-by-step process of achieving good credit with your very first credit card.
If this is your first time with a credit card, it is important to avoid impulsive purchase decisions that can quickly max out the credit line open to you. A successful financial strategy begins with smaller purchase choices that you can afford to pay off when you receive your credit card statement at the end of the month. Keeping your spending low and consistently paying it off over an extended period, at least six months, will demonstrate your credit worthiness to future lenders. Remember, the ultimate goal of your first credit card should be building a good credit history that will allow you to obtain a mortgage, auto loan or new credit when the time comes.
Getting Ready for Larger Purchases
With less spending and timely payments a part of your financial routine, you are now prepared to take larger steps and make larger purchases. A good rule of thumb is to keep your total monthly credit purchases at or below 30 percent of your overall credit limit. Simply put, if your credit allowance is $100 for the month, don’t exceed $30 in purchases.
In addition, you can also set aside the funds to cover your credit debt immediately. Online account access allows you to check your balance and make a payment at any time, so there is no need to wait for the invoice.
After following these suggestions for a few months, your credit card company may notify you that they’ve increased your credit limit. Even though your purchasing power has increased, be sure to stay at or under 30 percent of the new limit. If you start making spending mistakes, your credit card company can just as quickly lower your credit allowance.
Being able to walk away from impulse purchases and overextending your financial resources requires self discipline. Restraint is also required once you begin to receive offers from multiple credit card companies. Starting with just one credit card is a smart way to keep your accounts manageable. Multiple cards, balances and due dates can result in missed payments and a lower overall credit score. In order to avoid temptation, you can actually choose to temporarily opt-out of receiving new credit card offers. Later, when you feel more secure about your credit abilities, opt back in and make smart choices from among the offers you receive.
Be Proactive, Monitor Your Activity
Most credit card companies offer a secure online option that allows you to monitor and pay your credit card. There will most likely be a “paperless billing statement” option that allows you to obtain and view all your statements online instead of via the US Postal Service. This option tends to be quicker and helps avoid identity theft, but if you feel more comfortable receiving a hard copy of your statements, (some people use them as a reminder to pay their bills), then stick with what works for you.
You Can’t Pay Your Bill in Full—What to Do Next
The unexpected happens. If you cannot pay your monthly credit card bill in full, making at least the minimum payment due is mandatory to avoid collections agencies. In addition, cease all credit card purchases in order to not add to your overall balance due. When possible, pay a little more than the minimum required payment to fix the situation as soon as possible.
Building good credit takes time. Be sure to get off on the right foot, rather than having to fix bad credit down the road, so lenders will view you as a good borrower when the time comes for one of life’s big purchases.